For plans sponsors that haven’t comprehensively reviewed their statements of investment policies and procedures in a while, it may be time to refresh the document to ensure it correctly reflects the details of the plan and is in line with current regulations.
There’s an extra incentive to do so for plans registered in Ontario as recent regulatory changes have increased the document’s visibility among stakeholders and compelled plan administrators to invest in accordance with it.
Read: New SIPP requirements take effect
For their next review, plans sponsors should consider six important items:
1. Tailor the document to the plan’s circumstances:
Fiduciaries are responsible for making investment decisions that are in the best interest of plan members and beneficiaries. In other words, the decisions must reflect the specific circumstances of the plan. Logically, the same is true for policy documents. Remember that standardized templates from record keepers and other service providers aren’t necessarily appropriate for all circumstances.
2. Make it practical and easy to read:
Statements will be easier for readers to navigate if they’re in clear and concise language and avoid redundant information. Instead of simply referencing the statutes and regulations that govern the plan, consider outlining in plain language each of the prescribed investment rules applicable to the plan. As most fiduciaries aren’t pension law experts, doing so saves them from having to locate and interpret the rules themselves.
Read: SIPP requirements: Out of the boilerplate and into the boiler
For the document’s clarity, a rewrite is often more constructive than further amendments. Watch out for a patchwork of different segments built up over time that create the potential for redundancies or conflicting information and can be confusing and unpleasant to read.
3. Assign responsibilities to promote accountability:
Remember, the document serves as a policy manual that provides guidance on how to manage the investment program and fulfil all responsibilities. It should, therefore, outline the investment-related roles and responsibilities of all participants in the governance structure, starting from the top of the organization and moving down. To minimize the chances of anything slipping through the cracks, assign all responsibilities to a specific party rather than simply giving them broadly to the plan administrator.
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Keep in mind that a plan administrator may delegate tasks to outside parties but will ultimately retain oversight responsibilities. Ensure outside parties that have agreed to abide by the investment policy statement periodically attest to their compliance. Administrators can also consider using softer language when defining expectations for other service providers not governed by the investment statement.
4. Avoid self-inflicted wounds:
The plan administrator has full discretion over the plan’s investment policies and procedures. Avoiding overly restrictive provisions and including buffers to provide flexibility when a provision is breached can help avoid unintentionally going offside. Plan administrators should avoid any practices they can’t follow through on, as this isn’t the place for aspirational goals. Remove any legacy wording that describes practices the plan no longer follows.
Plan administrators should beware of the potential for conflicts with other policy documents or third-party agreements. A common pitfall is to place self-imposed investment constraints on externally managed pooled funds. The investment policy statement has no bearing on the investment of those funds. Such provisions are toothless and create the potential for inconsistencies and non-compliance.
5. Don’t forget to include procedures:
Often, plan administrators overlook that important component. Procedures help to outline how accountable parties should implement and comply with a statement’s policies. Documenting instructions on selecting and monitoring investment managers and other important aspects of managing an investment program promotes institutional memory and continuity for a more consistent approach over time.
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The mechanism for monitoring compliance should also be part of the document. Plan administrators should be able to demonstrate their ongoing compliance to the regulator with written evidence.
6. Ensure your investment policy statement is up to date:
Over time, plan administrators will need to update the document due to factors within and outside of their control. Any desired investment decisions the statement doesn’t provide for in its current form will trigger the need for an amendment. Examples of such decisions include an update to the asset mix or the introduction of a new asset class.
Overall, a statement of investment policies and procedures is a continuously evolving document and it’s important to ensure its provisions and wording coincide with a changing regulatory environment. Plan sponsors should ensure they’re routinely monitoring regulatory developments and that all documents align with federal investment rules that trump any of the provisions contained in the statement. Lastly, Ontario plan administrators must remember to file amendments to their document within 60 days of approval to avoid any administrative penalties.